Uncharted Waters: Agents, Insurers Deal With Nuclear,Bio & Chem Risk

Agents and brokers moving into the uncharted waters of helpingclients deal with the potential consequences of nuclear, biologicaland chemical terror threats are dealing with an ever-changing setof exposures, experts say.

“The big problem is that terrorism is constantly evolving and weneed to constantly revisit the issue and reflect upon the currentstate of play throughout the world,” said Justin Preistly, directorof counter terrorism, risk management, for insurance broker Aon inLondon.

“We see many instances of terrorism in the world,” he said,referring to anthrax mailings and bombings, as examples. “We haveto be proactive. We need to have procedures that adapt and evolve”as new forms of terror evolve, he said.

“Unfortunately, this is not something that you can address andforget about if you want to take it seriously,” Mr. Preistlysaid.

In Chicago, Aons Bill Harrison, managing director of CrisisManagement Practice and part of Aon-Giuliani Protocol partnership,said that pre-incident planning gives clients a place to start inresponding effectively to a catastrophic incident. But it isequally important, he explained, that the plan be tested andupdated regularly through training and crisis simulation.

“If the plan is not constantly updated with simulations everyhandful of months, it becomes useless,” he said.

Crisis and contingency planning is a fact of life, agents andother experts say, because insurance coverage is not easy to comeby.

There is insurance available for nuclear risk, but it is veryexpensive and priced to a point where it is not affordable forclients, Mr. Harrison said. The alternative, he said, is to have acomprehensive plan in place to react and respond.

“The problem is that there is not much [agents and brokers] cando about it; its not covered,” said Bill Wilson, director ofVirtual University, the educational affiliate of the Alexandria,Va.-based Independent Insurance Agents and Brokers of America,referring to the trio of potential terror events from nuclear,biological or chemical weapons, otherwise referred to as NBCevents.

It is probably the most difficult position for an agent orbroker to be in–providing services for uninsurable risks.

While the Terrorism Risk Insurance Act gives some financialsupport for certified foreign acts of terrorism, Mr. Wilsonexplained that guidance by the Treasury department has virtuallyeliminated coverage for NBC events.

The Treasury, which is responsible for certification of acts ofterrorism, says if a policy excludes nuclear or radiationcontamination, then that applies to terrorism as well, Mr. Wilsonsaid. The same goes for pollution exclusions, which would coverbiological or chemical terrorism.

He said not all policies have these exclusions, but most do,which means few, if any, have coverage.

The problem for insurance companies is finding underwritingcriterion, according to Henry O. Schramm, chief underwritingofficer for PMA Group, an insurer based in Blue Bell, Pa.

“TRIA has nothing in it regarding workers compensation, otherthan it is expected a carrier will provide it. I think thats fineif you are talking about an event that involves a truck bomb orsomething like that.”

“As much as you can have a devastating loss from that kind ofevent, I think that kind of thing is quantifiable,” he said,suggesting that it is possible to underwrite against the risk of atruck bombing and that is, he believes, what the government expectsthe insurance industry to do.

“But when it comes to events like nuclear, biological, chemicalor radiological, I think it is a very, very different story. Thatis where the insurability of such events come into question,” hesaid, noting that the questions about insurability are legitimatequestions.

Experts who are attempting to model these disasters have anenormous amount of data they need to factor into such an event–suchas place, weather, number of people, device used–and it is astruggle for them, he said. And each piece of data can have asignificant outcome on the model.

“This is all new ground for the industry and those who docatastrophe modeling,” he noted, explaining that these experts aretrying to use their natural catastrophe models for this newrisk.

“There is no intent on the part of nature to subvert things andget around what you have built,” he continued. “We can buildstronger wind protection” into the construction of buildings tomitigate the damage from natural catastrophes. But when “someone isintentionally plotting to subvert whatever you are doing on aconscious basis, the difficulty is predictability and trying tostay a step ahead.”

However, this does not mean that the industry is not rising tothe occasion and trying to do what it is capable of doing from arisk control standpoint.

PMA Groups Web site, for example, has information for agentsgiving guidance on terrorism risk. It advises agents and brokers onwhat they should be looking for and doing, Mr. Schramm aid. Thisincludes reviewing the concentration of employees, planning escaperoutes and other conscious risk management practices.

Richard G. Berthelsen, director of curriculum for the AmericanInstitute for CPCU and Insurance Institute of America in Malvern,Pa., said the institute is in the very early stages of puttingtogether a curriculum to deal with questions of NBC risk and howthe industry needs to address the issue.

In the meantime, Mr. Preistly said that agents and risk managersaddressing the issue right now first need to conduct a riskassessment of the types of threats possible, whether that is a bombor some form of NBC.

The next step is to look at the organization and see where itsvulnerabilities are. The aim is to determine how to prevent theincident from happening, and if it does, have a response for peoplein place.

His example was the anthrax scare, where decisions needed to bemade quickly on scant information. Rooms and people needed to beisolated. Others, who were not infected, needed to know where to goand what to do.

Emergency services were called inand will be for future events.But, realistically, the first responders are the people who are inthe middle of the contamination while they wait for help to arrive,he explained.

“In the first instance, it is the individual company that musthave a robust response plan in place,” he said, adding that theplan must be well rehearsed and everyone involved well trained todeal with the situation.

The primary aim of the risk management plan, Mr. Priestlypointed out, is to save lives of employees and visitors. Shouldsomething happen, and a company not have a plan in place, thecorporation would be open to charges of negligence. Without theplan, no defense against the charges of negligence would stand upin court, he said.

“A corporation must take sensible, reasonable steps to mitigatethe threat,” he said, adding that the mitigation plan shouldattempt to deal with the event in a safe and timely manner, henoted.

The United States, he observed, is experiencing something thathas been a reality, on some level, in the United Kingdom for morethan 30 years in its battle with the Irish Republican Army. In thatrespect, he said, the United Kingdom is ahead of the United Statesin having procedures in place.

However, he noted, the IRA would issue warnings about theirbombings “never wanting mass innocent casualty. They wanted massdamage.”

“Today we have a little group named al-Qaida, whose [members]cause is to kill as many people as they can. That is their aim,”Mr. Priestly said. “We have never had to deal with that.”

Risk managers and agents who are advising their clients onmanaging the risks associated with potential terror events shouldreview contingency plans and ask themselves if the plans aresensible ones.

“It is not an expensive thing to do and it will save the livesof employees,” Mr. Priestly said.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, June 30, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.